MSME Business Loan Interest Rates

The micro, small and medium enterprise industry in India is booming. Start-ups led by skilled & passionate individuals, cottage industries, traditional crafts, micro & small-scale business initiatives in rural & semi-urban areas– different businesses across the MSME sector are spreading their wings and enjoying better prosperity. And a key factor behind their success is the wide availability & easy accessibility of different kinds of debt financing products for MSMEs.

Numerous Government business loan schemes such as PSB loans in 59 minutes, PMMY MUDRA, & the Start-Up India scheme have made it extremely simple for MSMEs to avail of varied business financing products from significant banks & NBFCs. The Indian Government & the Reserve Bank of India have also instructed prominent public sector banks, private banks, regional rural banks, and non-banking financial companies to develop convenient loan offerings for micro, small and medium enterprises.

There is an assortment of MSME business loans available today, each with its features & attractive interest rates. Businesses can avail of these loans only if they meet the current requirements of being identified as an MSME.

Check MSME Business Loan Interest Rates!

New Definition of MSME

The Reserve Bank of India and the Ministry of Finance revised the definition of MSMEs in May 202o. Formerly, the investment limit of a business was used as the key identifier and classifier. As of 202o, the annual sales turnover of a company is now also taken into account besides the investments made.

This revision was brought forth in light of the Atmanirbhar Bharat Abhiyaan of the Indian Government that aimed to make MSMEs across India self-sufficient. The revised definition of MSMEs is as follows:

  • Micro Enterprises: Investments in plant and machinery not more than Rs. 1 crore and an annual turnover not more than Rs. 5 crore.
  • Small Enterprises: Investments in equipment & establishments not more than Rs. 10 crores with turnover not more than Rs. 50 crore.
  • Medium Enterprises: Investments not more than Rs. 50 crore and an annual turnover of not more than Rs. 250 crore

A business meets any of the above criteria and is eligible for MSME loan schemes. Under the new definition, no distinctions will be made between businesses in the manufacturing and services enterprises. The Government has also increased the maximum investment limit for borrowers, allowing more businesses to avail of MSME loans.

Collateral-free business loans for MSMEs come in various formats and offer low-interest rates, zero to nominal processing fees, flexible repayment tenures, convenient refinancing options, zero-collateral requirements, and the like. Moreover, micro, small and medium enterprises can avail of MSME loans online via the official websites of lending institutions or the Indian Government’s centralised digital marketplaces for business funding.

What is the Interest Rate on MSME Loans?

Businesses need access to easy and quick financing to maintain healthy liquidity, maintain healthy working capital, invest in disruptive technologies, or make urgent purchases. Today, various MSME business loan schemes are available for firms in the MSME sector.

Regarding MSME loans, besides interest rates, lender processing fees, scheme loan repayment tenure, and associated features vary from one financier to another. Government-backed MSME loan schemes offer lower interest rates and more convenient repayment tenures. However, as the Central Government directs banks and NBFCs to focus more on priority sector lending, numerous public sector banks and non-banking lenders have developed debt financing products explicitly tailored to meet the different needs of micro, small and medium enterprises.

Interest rates vary widely across different lenders. MSME business loan interest rate starts at 7.65% and is offered by the State Bank of India. However, this interest rate depends on the borrower’s credit history, their business requirements, and MCLR, the marginal cost of fund-based lending rate, which is the lowest interest rate a bank or other financier can offer.

Top Banks’ MSME Loan Interest Rates in 2022

Here’s a look at some significant banks offering MSME business loans and their interest rates.

  • Allahabad Bank: Interest rates are determined at the discretion of the bank;
  • Oriental Bank of Commerce: Rate starts from 10.70% p.a. onwards;
  • Andhra Bank: Determined at the bank’s discretion;
  • Central Bank of India: The rate of interest start at 11.25 %;
  • Indian Bank: Offers MSME loans at 9.75%;
  • Punjab and Sind Bank: Attractive interest rate beginning at 9.95% p.a.;
  • Punjab National Bank: MSME loan interest rate determined at the bank’s discretion;
  • State Bank of India: Lowest interest rate starting at 7.65% per annum;
  • Syndicate Bank: Decided at the bank’s discretion;
  • UCO Bank: Interest rate starting at 8.85%;
  • Union Bank of India: Loan interest rate determined at the discretion of the bank;
  • United Bank of India: Interest rates range between 10.25% – 16.25% p.a.;
  • HDFC Bank Interest Rate: Lie in the range of 10% to 22.5%;
  • Axis Bank: The rate of interest lie in the range of 14.25 to 18.5%;
  • IDFC First Bank: 14.5% onwards;
  • Kotak Mahindra Bank: Interest rate lie between 16% to 19.99%;
  • RBL Bank: Offers MSME loans at interest rates lying between 17.5% to 25% per annum;
  • ICICI Bank: Rates at 17% onwards;
  • Bank of Baroda: Rates are decided upon as per business profile and requirements; Rates start at 14%;
  • Indian Overseas Bank: 11% onwards;
  • IndusInd Bank: Rates begin from 13%

(Interest Rates As of October 11, 2022)

The minimum sanctioned loan amount can be as low as Rs. 50000, while the maximum amount can go up to a few crores.

Popular Banks offering MSME Loans in India

The most popular banks that offer MSME business loan schemes for 2022.

1. State Bank of India’s SME loans:

Working capital or term loans are offered at low-interest rates starting from 9.65%, with a processing fee of 2% applicable on the loan amount; the amount depends on the borrower’s profile & requirements, with loan repayment tenures extending up to 10 years.

The bank offers an array of convenient SME business loans such as asset-backed loans, E-Vendor loans, SME Marble Plus, etc. and is also a partner bank with the Government’s PMMY MUDRA & Stand-Up India scheme.

State Bank of India offers a unique debt financing product for small enterprises in the manufacturing, wholesale/retail, or services sector. Known as Simplified Small Business Loans, they are offered as a dropline overdraft facility with the loan amount ranging between Rs 10 lakh to Rs. 25 lakh. The repayment tenure is 5 years, and the interest rate depends upon the borrowing business’s requirements & the MCLR. However, the Simplified Small Business Loan is NOT a collateral-free loan.

2. SME Loans from HDFC Bank:

Apply for an MSME loan for your liquidity, working capital, provisioning & setting up business units, equipment purchases or any other banking requirements through the HDFC credit facility. HDFC interest rates start at 15.75 % per annum, and the maximum loan amount available is Rs. 50 lakhs and repayment periods extend up to 4 years.

HDFC bank offers unsecured business loans in three different formats: working capital, term loans, and business growth loans.

3. ICICI Bank MSME Business Loan:

Offers MSME loans at interest rates starting from 13.5%. The maximum loan amount that can be availed is Rs. 2 crores, while both the processing fee & the repayment tenure depend on the business loan scheme.

Top NBFC MSME Loans Interest Rates

Here’s a look at the most prominent non-banking financing institutions that offer MSME loans and associated interest rates.

  • Lending Kart: Lending Kart offers credit facilities for businesses in the MSME industry for loan amounts up to Rs. 50000 to Rs. 2 crores. Interest rate lies between 11.99%to 21%. The maximum loan repayment tenure is 3 years, with the minimum tenure being just 1 month. The processing fee lies between 2% to 3% of the loan amount.
  • Fullerton India: Offers collateral-free loans of up to Rs. 50 lakhs. The interest rate lies between 11.99 to 21%, repayment tenures can be between 1 to 5 years, and the processing fee can go up to 3% of the loan amount.
  • Mahindra Finance: Business loans available for up to Rs. 50 crores. Interest rates for MSME loans start at 14%, loan tenures can be between 6 months & 7 years, both inclusive, and processing fees can differ per business requirements.
  • Muthoot Fincorp: Micro and small enterprises can avail of unsecured loans for amounts as low as Rs. 15000 to as high as Rs. 8 lakhs. Business loan interest rate lies between 12 % to 24%, repayment tenures are between 6 to 36 months as per the borrowed amount, and the processing charge is 2% of the loan amount plus additional taxes.

Get MSME Loan at Low-interest Rates, if You have a Good Credit Score

Do you and your business have a good enough credit score? Are you and your business considered creditworthy by all of India’s primary credit rating agencies? You may meet the eligibility criteria for availing MSME loans at low-interest rates.

A credit score is an automated number generated by credit rating agencies that signify & summarize an entity’s creditworthiness or repayment history. Higher the credit score, the higher the chances of getting the desired loan amount at a favourable interest rate. A good credit score of at least 750 can help MSMEs avail of critical benefits, including flexible repayment tenures, micro finance refinance scheme, easy onboarding, convenient interest rates, lower or zero processing charges, quick approval, pre-approval, and other additional benefits.

To build a good credit score, firms and businesses that are availing of any loan facility for the first time need some credit facility. Building and maintaining a good score is essential to acquiring any debt financing with ease and in a convenient manner.

Know more about Credit Scores and their Importance in Availing of MSME Loan

Having a good credit score can make it simpler to avail of MSME business loans. A good score lies around 750 or above and indicates a good credit repayment history, timely EMI payments, and zero default. A high credit score can make it easy to sanction desirable loan amounts, availing reduced interest rates, longer repayment tenures, refinancing options, and quick approvals in the future.

Does MSME Loan come with or without Collateral/Security?

Both secured and unsecured business loans are available for MSMEs. Banks generally offer both collateral-free and secured loans, while most NBFCs offer MSME loans backed by specific collateral.

Collateral-free loans for MSMEs usually have an upper limit of Rs. 1 crore. They are short-term loans with a minimum tenure of around 1 year, which can be extended to up to 5 years. The Credit Guarantee Fund Scheme For Micro & Small Enterprises(CGFMSE) of the Government of India has also directed scheduled commercial public and private sector banks to offer MSME loans of up to Rs. 100 lakhs to a single borrowing unit without any collateral.

Factors affecting MSME Loan Interest Rates

Key factors affecting MSME loan interest rates are:

  • The credit score of the business
  • The loan amount
  • Business profile and sector
  • Business’s annual sales volume or turnover and amount of investment
  • The credit history, credit score, creditworthiness, and financial standing of the loan applicant or the business owner

How to Calculate MSME loan EMI?

One can calculate the EMI for their MSME loan using the following formula:

The formula for calculating MSME loan EMI is

P x R x (1+R)^N / [(1+R)^(N-1)] where-

P = Principal loan amount

N = Loan tenure in months

R = The Monthly Interest Rate = Annual Rate of Interest/0.12

The rate of interest (R) on your loan is calculated monthly.


Per the directives laid by the Reserve Bank of India, every public and private sector commercial bank has set goals regarding MSME. MSME lending is considered a priority sector lending. Domestic public and private commercial or retail banks (except small and rural regional banks) with more than 20 branches need to keep 40% of the adjusted net bank credit (ANBC) or borrowings off-balance sheets for MSME credit financing, thereby injecting much-needed liquidity in the micro, small and medium industries. Small sector and rural, regional banks need to reserve 75% of their ANBC for MSME and priority sector lending.

Yes, having a high credit rating above 750 is necessary for easy approval and flexibility in business loan schemes. A better credit rating improves chances of getting quick loan approvals, better interest rates, and flexible loan tenures.

In case of missed loan payments, the borrower must make monthly payments to the bank at 3 times the interest rate set by the RBI from the agreed-upon date.

The RBI and the bank’s credit policies regulate the interest rates on MSME loans. With effect from April 1 2020, the interest rates on loans meted out to MSMEs will be guided by the directives laid down in RBI circular DOR.DIR.BC.No.39/13.03.00/2019-20/

CIBIL generally compiles a business’s credit score in a company credit report. Go to CIBIL’s official website and check your CIBIL score for a nominal fee. CIBIL also allows businesses to check their CIBIL score annually for FREE. One can also check their CIBIL score online for FREE through certain third-party websites.